By
with contributions from Mimosa Spencer
 on June 20, 2018
Nicolas HouzŽ of Galeries Lafayette.

PARIS — “Something is always happening at Galeries Lafayette.” So states the historic slogan of the French department store, which is proving more current than ever as the family-owned retailer refashions itself for the digital age.

This includes building new stores, including a flagship on Avenue des Champs-Élysées in Paris due to open next year; expanding overseas; acquiring a series of online platforms; selling off regional stores; revamping its historic store on Boulevard Haussmann in the French capital, and reasserting its own identity over the array of brands it sells.

Meanwhile, the retailer is reshaping an entire swathe of central Paris surrounding its BHV department store with the recent opening of its Lafayette Anticipations art foundation, to be followed next year by the first French flagship of culinary mecca Eataly.

Nicolas Houzé has been steering the renewal efforts since being named chief executive officer of Galeries Lafayette and BHV Marais in 2013. The three pillars of his strategy are digitalization, internationalization and modernization, via a program of investments averaging 150 million euros a year.

Galeries Lafayette Group — which includes the Galeries Lafayette, BHV and Louis Pion brands — registered revenues of around 4.5 billion euros in 2017. Houzé aims to double the retail group’s profitability by 2020, even as he expands its overseas network to 25 stores by 2025, with China a particular focus for growth.

In his office overlooking the Opéra District in Paris, a framed drawing by French cartoonist Plantu takes pride of place. Published to coincide with President Trump’s visit to France in 2017, it shows him sashaying out of an airplane clutching branded shopping bags, with the caption: “Galeries Lafayette, here we come!”

In a wide-ranging interview, Houzé talked about carrying on the family tradition, nodding to his great-great-grandfather, who originally bought the plot of land where the new Champs-Élysées flagship will be located, before the Great Depression derailed his plans to build a store on the spot.

“Our role as company directors is to continue this journey and to come up with projects that keep the flame alive,” he explained. “Rather than living off the family heritage, we must be entrepreneurs, like the founder of Galeries Lafayette, and seize opportunities as they arise — not pass them up because we’re faint hearted.”

Here, Houzé discusses the retailer’s expansion, increasing focus on digital — and why stores will always be important.

WWD: How did Galeries Lafayette perform in 2017?

Nicolas Houzé: Sunday opening gave us an extra 40 trading days in 2017 and generated a 10 percent increase in revenues at our flagship on Boulevard Haussmann. In addition, sales were up by an incremental 3 percent, meaning revenues at Boulevard Haussmann rose 13 percent in total. Sales for the rest of the network were roughly flat. Given that the Boulevard Hausmann store accounts for roughly half of our revenues, that means sales at Galeries Lafayette were up between 6 percent and 7 percent in 2017. So for us, Sunday opening was good for business as well as profitable. Some people were saying that given our staff compensation, we could not be turning a profit. We are less profitable than during the week, but profitable nonetheless.

Nicolas HouzŽ of Galeries Lafayette.

Nicolas HouzŽ of Galeries Lafayette.  Emmanuel Fradin/WWD

WWD: When you took over the department store division in 2013, you announced a strategy based on three pillars: digitalization, internationalization and modernization of the store network. What have been the main evolutions in each of these pillars since then?

N.H.: We are modernizing our stores, whether the Boulevard Haussmann flagship or our regional network, because it was important for us to establish a much stronger identity for the Galeries Lafayette brand. We’ve done this very successfully with the opening last year of a new store in the Carré Sénart shopping center on the outskirts of Paris, and another earlier this year in the Prado shopping center in Marseille. In both instances, we were able to move existing stores to new environments that were more in tune with the brand, which also allowed us to revamp our visual identity, through merchandising and architecture, to give Galeries Lafayette a much more powerful voice and identity. This has been generally well accepted by the brands. Naturally, we didn’t want to completely erase their identity, but we felt it was important to have our own identity and for the brands to exist within that framework. It’s a way for us to differentiate ourselves from shopping malls.

It’s also the thinking behind our planned remodeling of the Boulevard Haussmann store, which aims to redesign the layout of the main store in order to give more space to certain departments, such as shoes. When we opened the shoe department in the basement in 2009, we were the first to launch a concept dedicated to shoes. It’s been almost 10 years and it’s performing very, very well, but we need to give it fresh momentum. We have worked with English architecture firm AL_A to turn it into a much larger and more open space on the fourth floor. That will free up some space between the basement and the ground floor. The remodeling is due to start next year and is expected to last between three and four years, because clearly, we have to be careful not to cause too much disruption to foot traffic and revenues. This will contribute to the modernization of Galeries Lafayette in the areas visible to customers, but we have also modernized our organization and processes.

Galeries Lafayette is a company with a history of more than 120 years and it had settled into a pyramid-like system. We have tried to inject a little dynamism and agility into our processes in areas ranging from buying and selling to logistics, IT and marketing — all the different functions designed to allow us to better serve our customers. We also announced this year the sale of 22 stores, mostly located in smaller cities in France. This contributes to modernization, because it will allow those stores to gain fresh momentum thanks to the partner we chose, who is going to invest in those stores to renovate and transform them.

Digital is my absolute priority. We’ve done a huge amount in the last few years to revamp galerieslafayette.com and ensure the most optimal experience for our customers. There’s still a lot to do and it’s a world in constant evolution, in terms of our systems and organization, but also in terms of the offer on our site. It’s also about making sure that our sales associates have access to digital resources in order to better serve our customers.

In 2018, it is no longer conceivable for a customer who walks into a Galeries Lafayette store to leave without the product they came for. That product is bound to be somewhere within the Galeries Lafayette ecosystem, so we have to be able to respond to customer expectations via digital tools.

This digitalization is not a gimmick. It’s a necessary evolution for the department store of tomorrow, and I’m convinced that the combination of physical and digital will be the winning equation in the world of today. To further that process, we have made two acquisitions in recent years: luxury reseller Instantluxe.com and online store BazarChic.

Instantluxe allows us to add a complementary service at Galeries Lafayette by offering second-hand products to buy or rent, both online and in stores, because we have developed corners in some of our stores, including Boulevard Haussmann.

The private sales market is becoming increasingly important, and we didn’t have a presence in that area. Both physically, with the development of Galeries Lafayette Outlet stores, and digitally, with the acquisition of BazarChic, it was important to gain a foothold in that sphere.

The most recent of our acquisitions is La Redoute. This will allow us to speed up even more the digitalization of the company and reach our internal targets.

The last pillar is international development, which began decades ago. It’s part of the company’s DNA. In the Twenties, Galeries Lafayette was present in London, Alexandria and Montevideo. Today, we have the Berlin store, which opened more than 20 years ago, in 1996. We opened Dubai in 2009, Jakarta and Beijing in 2013 — so we really have a foothold in several regions. Today, our focus is on three main regions. Europe, where we have a store in Berlin and will be opening directly operated units in Milan and Luxembourg; the Middle East, in broad terms, where we are present in Dubai, Lebanon and Turkey with franchise stores. We have an opening planned in Doha at the beginning of next year and in Kuwait in 2020, again under franchise with local partners.

In China, we have operated a store in Beijing since 2013 under a 50-50 joint venture with I.T Ltd.

We plan to open a store in Shanghai by the end of this year or the beginning of next. We are also fielding requests from other cities. It’s a bit early to name them, but there are additional projects in the pipeline, as well as plans to launch online sales in local markets.

WWD: Just to clarify, is the plan to have 20 stores overseas within the next five years, or by 2025?

N.H.: We had eight stores in 2017 and there are five in the pipeline: Doha, Kuwait City, Luxembourg, Milan and Shanghai. I firmly believe the potential is to have 10 stores in China by 2025, so a total of 25 international stores by 2025 seems like a coherent objective. By 2025, we expect to generate a little more than 20 percent of our revenues overseas, compared with a little less than 10 percent today.

The construction site of the future Galeries Lafayette flagship on Avenue des Champs-Élysées.  Courtesy/Marco Capelletti

WWD: Details are beginning to emerge about your new flagship on the Avenue des Champs-Élysées, which opens in one year. Is the idea to make it like a concept store, with a mix of emerging and established brands, or a personal shopping service that covers the entire store?

N.H.: Or both at once (laughs).

We have a long history on the Champs-Élysées, because our founder tried to secure the location some 90 years ago.

Théophile Bader, my great-great-grandfather, bought the private mansion known as Hôtel de Massa that originally stood at 52, Avenue des Champs-Élysées. In order to obtain the building permit for his department store, he agreed to transfer the mansion to a park beside the gardens of the Paris Observatory and donate it to the Société des gens de lettres, a writers’ association. Then the crisis of 1929 hit, so he decided to focus his efforts and investments on the Boulevard Haussmann store, and the project was never completed.

Opening a store on an avenue as iconic as the Champs-Élysées, with that many local and overseas visitors, is obviously very different for us than opening a new store in Marseille or Carré Sénart. You have to conceive it differently, because the store is not very large. At 6,500 square meters [almost 70,000 square feet], it will be the largest store on the Champs-Élysées, but in terms of our department stores, it is on the smaller side. We have given [store director] Nadia Dhouib more or less carte blanche to imagine what a Galeries Lafayette on the Champs-Élysées ought to look like. Our idea is probably closer to a concept store than a department store, because the size of the store makes it impossible to host large shops-in-shop the way we do on Boulevard Haussmann. We have to do something very different.

The idea is to be like a laboratory for scouting new brands and trends, with a positive halo effect on the rest of Galeries Lafayette, but we also want it to be complementary to the Boulevard Haussmann store. There won’t be any competition between the two stores. I think we will cater to very different customer types in those two locations, so we have to be innovative. That’s why we have commissioned Bjarke Ingels, an architect who doesn’t usually work in retail, to create something different. We hear too often that all big department stores are alike. This is an opportunity for us to tell a new story.

We plan to do this through our offer, but also through our staff, because all the sales associates in the store will be employed by Galeries Lafayette. The relationship we develop with the customer must be flawless, and our staff needs to have an answer for every question. We can’t afford to have sales associates refer customers to someone else. They have to be able to accompany the customer during every step of their shopping journey. Digital will obviously play a key role in the store, but it really has to serve a purpose by allowing our staff to respond to customers’ expectations, with information about the availability of products, and the capacity to order or reserve on behalf of the customer.

WWD: European retailers are really lagging in terms of helping customers locate available stock. Why is that still complicated to implement here?

N.H.: It’s becoming more common, especially with store brands. It’s easier for the likes of Zara or H&M, or even Hermès, who have an overview of their stock, and to access that information on a digital tool. Multibrand stores like us, which have different types of contracts with our partners, are both wholesalers and retailers. It’s more difficult to know the full extent of our available stock, simply because in technical terms, a portion of that stock is not ours but belongs to our brand partners. Until a few years ago they did not want to share that information, but everyone understands that in today’s digital world, it’s a necessity. We’re getting them on board, not because we want to keep tabs on their stock, but because we want to improve the customer experience. Having said that, we carry almost two million references from around 2,000 brands, so it’s a considerable undertaking, and the higher the positioning, the harder it is to obtain that information.

WWD: You mentioned another interesting point: the fact that consumers feel all stores look the same. How do you set about giving a local flavor to your future flagships in Doha, Shanghai or Luxembourg, for example?

N.H.: For our recent openings in France, such as the Carré Sénart or Prado stores, we tried to be much more local both in terms of architecture and product offer.

For our stores overseas, the aim is to carry two-thirds international brands — half French, and half well-known global brands such as Michael Kors or Coach — and one-third local brands. In each of the regions where we operate, we have teams in charge of sourcing regional brands. In China, that might be Chinese brands, but also South Korean or Japanese brands. These regional brands allow us to establish a fashion DNA for Galeries Lafayette, which is one of the keys to our success in Beijing or Dubai, namely.

A rendering of the future Eataly store in Paris.  Courtesy

WWD: You have also branched out into a new role by taking on the French license for brands such as A Bathing Ape and the Eataly franchise, which are both part of your extensive redevelopment of the area around the BNH Marais in central Paris. Are these one-off partnerships, or could that become a new model for you?

N.H.: For the time being, they are one-offs. We are looking at other types of partnerships. A Bathing Ape has a low footprint in Europe, where it is present only in the U.K., and it belongs to I.T, our partner in China, so we thought that could be an interesting model for development. Our store on Rue de la Verrerie in Paris, behind BHV, is doing very well.

For the time being, we have no plans to become more active in that field, but if there are any brands that are having a hard time gaining a foothold in France, because of the complex regulatory framework, we may leverage our local expertise and take on another license.

WWD: Major luxury groups are reporting a drop in Chinese spending in Europe as a result of the strong euro. What are you doing to support demand from this group?

N.H.: After the French, the Chinese are our top customers. The exchange rate is a very important factor today for international customers, in particular the Chinese. We’re not seeing a slowdown, but rather a drop in the average basket of Chinese consumers. This has been going on for several months and we’re working very closely with our partner tour operators in China to try to determine the reasons and better target the kind of customers they will bring to Galeries Lafayette going forward. The Chinese government has also implemented a series of measures to encourage domestic spending, which doesn’t stop Chinese people from enjoying travel and shopping. We are fortunate in France to be a prime destination for tourism.

In that regard, we are confident that we will always be a privileged destination and we are working on it with all the tour operators with whom we have long-term partnerships. We have been working for more than 20 years on attracting an international clientele — Japanese, American, Russian and lately Chinese. We have a special unit dedicated to this customer group, which is also active on Chinese and Japanese social networks.

WWD: A year ago, you opened a dedicated store for Chinese tour groups across from the Boulevard Haussmann flagship. How has that performed?

N.H.: The main objective of the store, which opened in March 2017, was to improve the comfort level of those shoppers.

It’s proven a real commercial success, too, as we have met our target for revenues, which I can’t disclose. This allows us to redirect some of the flows from the main store so it looks a little less like a tourist attraction, as was sometimes the case in the past. Today, even if we continue to draw big crowds, I think the shopping experience on the ground floor, basement and first floor is better than it was two or three years ago.

WWD: Are you considering opening other similar stores?

N.H.: For the time being, it is a one-of-a-kind store aimed at welcoming Asian customers that makes sense in this location. We are open to other opportunities, but we have not studied any so far.

WWD: Are you maintaining your target of 10 percent online sales by 2020, versus around 2 percent at the end of 2016?

N.H.: We are maintaining the target of 10 percent. I won’t tell you where we stand at present, because we did a lot of work on the back office of the site in 2017, which caused us to lose some revenues in the first half. Although we saw a pick-up in the second half, we did not meet our growth expectations in 2017. Online revenues are up by more than 35 percent so far this year, so we’re back on track and we expect to meet our target of 10 percent of online sales.

WWD: Does that exclude La Redoute?

N.H.: Yes, that excludes La Redoute. It’s purely Galeries Lafayette and not Galeries Lafayette Group, because if you include La Redoute, online sales should account for 30 percent of sales by 2021.

WWD: Have you been sharing resources with La Redoute?

N.H.: The acquisition was announced at the end of August last year, but was only effective at the end of April 2018. In the meantime, we have been brainstorming on potential synergies, but we have only just started to implement those ideas. We come from very different cultures, since they are a mail-order seller, even if they’ve gone digital, while we are a bricks-and-mortar retailer, so we have to figure out where we overlap.

We aim to make the Galeries Lafayette private labels available on the La Redoute marketplace by the end of the year, and to make the La Redoute private labels — both in fashion and homewares — available on the Galeries Lafayette marketplace and in some of our stores.

WWD: How are you dealing with the challenge of Instagram brands?

N.H.: We look upon them very favorably, because we’re convinced that the Instagram, or pure e-commerce, model is very compatible with the department store model. Our vocation is to aggregate all the brands and trends of the moment. Even if they were born on the Internet or Instagram, they have their place in our stores. Among the brands we have brought in are Sézane and RAD. We hope there will be others.

Nonetheless, I think there will always be a place for physical stores.

I’m convinced that once you have paid your taxes, electricity bill and phone charges, caught up with your friends on Facebook, read their comments on Instagram and watched a movie on Netflix, there comes a point when you want to get out of the house and go to a museum, catch a movie or go shopping.

WWD: Do you think you could ever launch your own brand online or on Instagram?

N.H.: Why not — though it’s not on the agenda right now. As our famous advertising slogan says, “Something is always happening at Galeries Lafayette!”
We are strongly committed to intrapreneurship, which could well give rise to ideas like that.

WWD: What are your plans for outlet stores?

N.H.: We have nine outlet stores at present. I don’t think we will add many more, especially as we have BazarChic online.

We see our outlet stores as a method to get rid of old stock and give our full-price stores the possibility to have bigger open-to-buys.

Contrary to the way things are done in the U.S., we don’t want to compete directly with our full-price stores, because I think that’s one of the reasons the U.S. department store model is struggling today. There are more off-price stores than full-price stores in the U.S., and sometimes they are across the street from each other, which is an aberration.

We firmly believe the department store model is not dead. It’s not because some retailers are struggling that everyone is in trouble. Today, the future of Galeries Lafayette Group is in our hands. We’re on the right track. We believe the three pillars we’re focusing on — modernization, digitalization and internationalization — are the keys to the group’s future success.

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